Silgan Holdings Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Silgan manufactures rigid packaging, reported in Dispensing and Specialty Closures, Metal Containers, and Custom Containers. The company renamed its Closures and Plastic Containers segments in 2021; their operations were unchanged.
Key financial results
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Net sales | $1,348.7 million | $1,176.5 million | $2,586.8 million | $2,206.9 million |
| Gross profit | $234.9 million | $224.1 million | $456.4 million | $409.2 million |
| Gross margin | 17.4% | 19.1% | 17.6% | 18.5% |
| Income before interest and taxes | $153.0 million | $131.2 million | $279.5 million | $233.4 million |
| Net income | $94.5 million | $78.2 million | $167.8 million | $135.8 million |
| Diluted EPS | $0.85 | $0.70 | $1.51 | $1.22 |
- Q2 operating margin was 11.3%, versus 11.2% a year earlier; first-half operating margin was 10.8%, versus 10.6%. Net margin was 7.0% for Q2 and 6.5% for the first half.
- First-half operating cash flow was negative $209.3 million, compared with negative $63.8 million in 2020. Working capital was a major use of cash: receivables used $277.8 million and inventory used $233.8 million. Capital expenditures were $123.6 million.
- Cash was $164.8 million at June 30, down from $409.5 million at December 31, 2020. Total debt carrying value was $3.42 billion, including $240.9 million current debt. The company had $195.9 million drawn on its revolving facility and reported $976.0 million plus Cdn $15.0 million of availability, after letters of credit.
- Current assets were $2.05 billion and current liabilities $1.32 billion. Dividends paid in the first half were $31.6 million.
Performance changes and drivers
- Q2 sales rose 14.6%; first-half sales rose 17.2%. Growth reflected the Albéa dispensing acquisition, higher raw-material cost pass-through, favorable currency translation, and segment-specific volume and mix effects.
- Dispensing and Specialty Closures sales increased 33.0% in Q2, including approximately 10% higher volume. Segment income rose, but margin fell to 13.5% from 14.3%, with delayed recovery of higher resin costs among the pressures.
- Metal Containers sales rose 4.6% in Q2, but segment income fell $13.2 million and margin declined to 9.4% from 12.0%. The filing cites raw-material and labor supply challenges, production shortfalls, higher costs, and less efficient manufacturing. First-half segment income fell $15.1 million.
- Custom Containers sales rose 5.7% in Q2 despite approximately 11% lower volume; segment income and margin improved, supported by product mix and operating performance. First-half volume was approximately 6% lower, partly reflecting unusually strong pandemic-related cleaning-product demand in 2020.
- Consolidated gross margin declined year over year in both periods, principally reflecting raw-material cost pressures and their delayed pass-through. Higher sales partly reflected cost pass-through, so sales growth did not translate proportionally into gross profit growth.
Liquidity, outlook, risks, and unusual items
- In February 2021, Silgan issued $500 million of 1.4% senior secured notes due 2026 and used the proceeds to repay $500 million of term loans. It recorded a $0.9 million early-extinguishment loss. Management said operating cash flow and borrowing availability should meet expected needs and reported compliance with financing covenants, with expected continued compliance during 2021.
- No specific earnings or revenue guidance is provided in the supplied filing text. Management noted that seasonal working-capital needs generally peak in summer or early fall and have historically averaged approximately $350 million; it also noted that fruit and vegetable harvest patterns make the third quarter seasonally important.
- Principal operating risks discussed include raw-material, labor, and supply-chain constraints; delayed cost pass-through; seasonality and harvest variability; foreign-exchange, interest-rate, and commodity-price exposure; and uncertainty associated with forward-looking statements.
- A European Commission antitrust investigation involving the European metal-packaging industry, including Silgan subsidiaries, remained unresolved. The company said it could not reasonably assess possible actions or estimate related costs. It reported no other pending legal matter expected to have a material adverse effect.
- First-half rationalization charges were $10.7 million, versus $4.7 million in 2020. The company disclosed expected annual cash payments of approximately $3.1 million through 2040 for its Central States Pension Plan withdrawal liability, and annual interest accretion expense of approximately $1.1 million through 2040.
- Management concluded disclosure controls were effective; integration of Albéa’s internal controls was ongoing, with inclusion in the 2021 annual controls assessment planned.
Important facts for investors to verify
- Whether supply-chain and labor constraints, production shortfalls, and resin-cost pass-through timing improve, particularly in Metal Containers and dispensing-related businesses.
- Whether elevated seasonal working capital converts to operating cash flow in the second half, and how cash, revolver availability, and debt evolve.
- Segment volume, margins, and contribution from the Albéa acquisition, while separating organic growth from cost pass-through and currency effects.
- Progress and potential costs of the European antitrust investigation and the long-term pension withdrawal liability.
- Ongoing covenant compliance, acquisition integration and controls, and any formal outlook or guidance in subsequent filings.